Up to 140,000 mortgage prisoners to get better home loan deal under rule change

The City watchdog wants to remove barriers that stop mortgage prisoners from moving to a cheaper deal

By Alice Grahns, Digital Consumer Reporter

10th January 2019, 4:15 pm

Updated: 11th January 2019, 10:57 am

HUNDREDS of thousands of mortgage prisoners have been given new hope of getting a cheaper home loan deal.

In a letter sent to the Treasury Committee, the boss of the Financial Conduct Authority (FCA) Andrew Bailey said that the regulator is considering changing lending rules to help 140,000 mortgage prisoners.

The rule change is good news for home owners stuck on expensive mortgage deals

Around 140,000 homeowners are trapped on high interest-rate home loans with unregulated or inactive firms, and are unable to switch to a cheaper deal.

This usually affects customers who took out a home loan before 2014 before affordability checks were tightened.

Many are now stuck in expensive deals and unable to move to a cheaper lender because they are unable to pass the harsher checks, which were introduced after the financial crisis.

But now the FCA wants to change rules to allow lenders to relax checks for mortgage prisoners if they pass a number of conditions, based on whether they are with an active or unactive lender.

There are 120,000 customers with firms that are unregulated and a further 20,000 mortgage customers with firms that are no longer lending.

For the further 10,000 who are with active lenders the FCA has already agreed a deal which means they can move to a better rate with their existing lender as long as they are up to date with payments, have two years left on their mortgage and up to £10,000 to pay off.

If the FCA goes ahead with the rule change for mortgage prisoners it means the remaining 140,000 would be able to apply for a new home loan under an easier affordability test.

This test would look at whether their new mortgage costs are more affordable than their current one.

In theory it would allow people to move to a cheaper mortgage, although it may not apply to all the 140,000 households.

A spokesperson for the FCA told the The Sun that it'll decide people the rule change will apply to in its consultation, due to be published in the spring.

I'm terminally ill and trapped in my home

CHRISTINE KINSELLA, 60, drew up a bucket list of dream holidays when she was diagnosed with a terminal lung disease.

But instead, the hospital worker will spend her final years working to pay off her mortgage, which she says is stuck on a “stupidly” high interest rate.

It led to her and thousands of others being trapped on a sky-high mortgage tariff.

She has repeatedly tried to move to a more competitive rate.

But the best her new lender — Landmark Mortgages — says it can do is a variable “loyalty rate” of 4.54 per cent, down from 4.79 per cent.

Christine said her bid to escape the high rate became more pressing a year ago when she found she had idiopathic pulmonary fibrosis.

She said: “The life expectancy of this disease on diagnosis is three to five years.

“I haven’t deteriorated too greatly in the last 12 months and I’m on a new medication, so I hope that I have more than five years.

“But the thought of working full-time is just not fair, as I know I will deteriorate and be unable to work eventually.

“I would like to reduce my hours but I have to feed this voracious mortgage.

"I just hope I live long enough to pay it off.”

For those who it'll affect, there's no clear timeline on how long the change will take to come into place, although Nicky Morgan MP, chair of the Treasury Committee, has urged it to happen "swiftly".

Following news of the announcement, Jackie Bennett, director of mortgages at UK Finance, said: "It is a positive step that the FCA has set out the action it will take to help those customers stuck on reversion rates who are with inactive or unregulated lenders.

"The FCA has noted the progress made through the industry’s voluntary agreement to help borrowers with active lenders switch to a better deal.

"But it has also recognised that regulatory changes are needed to remove the barriers to helping the thousands more customers who are currently with inactive and unregulated lenders.

"We will continue to work constructively with our broad range of members and the FCA to help ensure those customers who want a like-for-like mortgage can switch lenders more easily."

Meanwhile, Martin Lewis, founder of MoneySavingExpert.com, which has campaigned for a change since 2015, said: "For over four years we’ve been saying that it’s ludicrous that people are failing affordability tests because they’re absurdly told they cannot afford a cheaper deal than the one they’re already on.

Santander won't let us downsize our home

A FAMILY of three have been stopped from down-sizing their home because mortgage lenders Santander won't let them switch to a smaller mortgage.

New parents Anne and Carl Winter - not their real names - from Derbyshire wanted to move to a smaller house in an attempt to reduce their monthly repayments.

But the bank rejected their application even though it would reduce their monthly outgoings by £550.

They now face a £7,747 penalty if they choose to leave their current mortgage deal early and have been told to find another lender.

The couple bought their new build home in 2014 for £160,550, after securing a five-year fixed term mortgage with Santander. They put down £8,450 deposit.

But their finances took a dive after Anne had to give up her £17,000 a year job at the council to save on childcare, for their now one-year-old son Danny.

Moving to a smaller house would reduce their mortgage to £145,000, saving them around £200 a month.

And because their house has increased in value over the past four years by £25,000, freeing up the equity would mean they could pay off their credit card debt, saving them another £350 a month.

But Santander rejected their application because they failed affordability checks introduced in 2014, even though they'd never missed a payment.

"Affordability checks are important for first-time buyers.

"But for those that are remortgaging to a cheaper deal – without moving house, without borrowing more and without change of circumstance – to be told that they cannot afford a cheaper deal is nonsense, and it means the tests are flawed."

Mum, Kimberley Marren, cooks eggs and chips in her £25,000 east London canal boat home she renovated herself to avoid paying a mortgage

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